Blame Is Put on Management, but More Pain Looms for Hourly Workers, Retirees

Published on
by
the Wall Street Journal

Blame Is Put on Management, but More Pain Looms for Hourly Workers, Retirees

by
Matthew Dolan

Exterior view of General Motors' world headquarters in Detroit, Monday, March 30, 2009. President Barack Obama refused further long-term federal bailouts for GM and Chrysler, saying more concessions were needed from unions, creditors and others before they could be approved. He raised the possibility Monday of controlled bankruptcy for one or both of the beleaguered auto giants. (AP Photo/Carlos Osorio)

DETROIT - President Barack Obama's recovery plan for General Motors Corp. and Chrysler LLC appears to take aim at union retirees, a usually reliable Democratic constituency.

After studying the plight of the companies, the president's auto task force concluded GM and Chrysler's survival is dependent on greater concessions from the United Auto Workers union because the cost of funding retiree benefits had become unmanageable, especially given the downturn in global auto sales.

In his address Monday, Mr. Obama laid blame for GM and Chrysler's financial ills largely at the feet of the management teams at those companies. He called on hourly workers and retirees at the companies to be ready to accept more sacrifice if they hoped to keep their employers afloat.

The UAW appears to be standing firm that its members have made substantial concessions compared with other stakeholders. UAW President Ron Gettelfinger on Monday declined requests for interviews, but a person close to him said the union boss is determined not to consider further concessions unless bondholders and creditors agree to givebacks that cut GM's and Chrysler's debt.

Some Democratic lawmakers have offered support for the union. On Monday, Sen. Carl Levin (D., Mich.) acknowledged the union would have to agree to more cuts to retirees' benefits, but added that investors in GM, not employees, would have to sacrifice the most. The three Detroit auto makers provide health care for more than one million Americans, including union retirees and their dependents. In 2007, the union agreed to allow GM, Chrysler and Ford Motor Co. to pay billions of dollars into a trust fund, known as a VEBA, or voluntary employee beneficiary association, that the union would manage and use to cover the cost of retiree health care.

Under the terms of the bailout loans GM and Chrysler have accepted from the federal government, they are supposed to renegotiate the VEBA agreements so they can put a combination of cash and stock into the funds or equity. GM is obligated to contribute about $20 billion in cash, in addition to $16 billion in funds it already committed, and Chrysler about $10 billion.

The task force found that GM's own plan to deal with retiree health care and pensions grows "to unsustainable levels, reaching approximately $6 billion per year in 2013 and 2014." To pay those bills, GM would need to sell 900,000 additional cars a year, according to the panel. GM sold 8.35 million vehicles around the world last year.

A union local president in Michigan said more could be done to reach a compromise on retiree health care. But the union leader who represents GM workers warned if the auto makers step back from their obligations to retired workers, the remaining cost of their health care will not go away.

Clem Wittman, 68 years old, spent three decades working the assembly line for GM, building Monte Carlos and Skylarks in Kansas City, Mo. On Monday, he watched as Mr. Obama outlined his plans for steering the future of GM and Chrysler without explicit mention of the retirees. "It was scary because he never mentioned the retirees and legacy costs," Mr. Wittman said. "What 85-year-old can go out and get another job?"

He takes 11 medications, including some which cost more than $100 a month, all covered by GM health-care programs. Mr. Wittman said that for 30 years he paid for those benefits and shouldn't be asked to give them back.

-Sharon Terlep and Corey Boles contributed to this article.

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